How To Become Self-Employed: A Detailed Guide

For many, the demanding grind of a day-to-day job is manageable, but it becomes a psychological grind over time. You find yourself dreaming of something else and wondering how it can be done. Don’t worry, you’re not alone – anyone who even glances at mass media for long sees an incredible assortment of advertisements touting solutions to this very problem.

The truth is that going down the path of self-employment is hard in many ways, but with a well-considered plan based on some realistic assumptions and some work ethic and willpower, almost anyone can make it happen. Here’s a detailed guide to transitioning from the first thoughts of self-employment to walking out the door and being your own boss, no matter what you’re thinking about doing.

Positive Aspects Of Moving To Self-Employment

You control the schedule For many people, this is a huge advantage to self-employment – you control when and where you work. It might be in your living room or in your garage. You might start at ten in the morning or at midnight. The only constraint is what your customer needs from you, and that means much of the background busy work can be done around your other scheduled needs. This is particularly useful if you’re a parent; if a child is home sick, you don’t have to call into work and beg for a day off to take care of the child – you just take care of things according to your own priorities.

You decide what to do – and what needs doing This is particularly powerful for individuals who often find themselves doing things at work without understanding the need for the task or how it fits into the overall picture. Self-employed people don’t have this problem – everything is clearly connected to the overall purpose of your self-employment. Sure, there are mundane tasks, but you define them and connect them to the overall purpose, meaning that even the boring stuff has a reason.

You reap the profits Your effort and work quality are directly connected to the money you make, rather than the indirect connection that you have as an employee. If you make a big sale, the profit is all yours, not distributed to shareholders or spread around the organization. If you do good work that others like, you can make a lot of money for your efforts.

Negative Aspects Of Moving To Self-Employment

Your pay is irregular One major advantage of being employed by someone else is that almost always, your pay is highly regular. Compare this to most self-employment situations, where pay is highly dependent on your immediate success in your business. If you don’t make a sale or generate traffic in a month, you won’t have any income that month, and that can be very rough.

You decide what to do – and what needs doing While this is a positive, sometimes it can be a negative as well. Being self-employed requires constant self-motivation. If you’re the type of person who thinks things like “Well, I can do it later because Lost is on television right now!” on a regular basis, then self-employment will be a challenge. It is not for the lazy person.

You have to manage business finances With a regular job, things like Social Security and Medicare and income tax deductions are handled for you. Once you become self-employed, you have to handle all of these things yourself, which means being educated and being careful. You also have to take care of financial accounting and appropriate tax reporting. If you can’t do these things, the IRS will make you pay the penalty – and you won’t like that at all.

Other Aspects Of Moving To Self-Employment

Your work is much more diverse and challenging This is at the same time a blessing and a curse. It’s a blessing in that there’s always a variety of things to be done – advertising, salesmanship, pursuing the central business itself, accounting, and so on. It’s also a curse in that there is often a lot to do and in many cases it’s a trial by fire – you have to figure it out as you go along and learn from the mistakes.

The protection against failure is much lower than with a normal job Another feature that’s both a blessing and a curse. You’re much more responsible for the success of the whole enterprise than you are in an employment situation. For some, such responsibility can be a burden; for others, it can be a motivator and a liberator.

Laying The Groundwork

Before you even think about being self-employed, you need to have your own house in order first. Here’s some advice for preparing your life and your activities for that transition.

Live more efficiently Time and resource management are key parts of any successful self-employed person’s life, enabling them to maximize the freedom of being self-employed while maintaining their individual business. Here are three ways to help that process along:

Throw out the television Television can be a nice form of entertainment, but more often it is just a massive time absorber. Try going entirely television free for a while and see how much it changes your life.

Practice a personal productivity methodology That doesn’t mean that you should wholly adopt someone else’s system, but that you should be aware of some methods of getting things done that work for others and try to find the pieces that work for you. I wrote a detailed review of David Allen’s Getting Things Done that might help you get started; it’s basically the system I use to juggle all of the activities of my life.

Find your body’s optimal amount of sleep and stick to it This may be less or more than you’re getting right now. The best bet is to spend several days going to bed at the same time and then when you first awaken from sleep, don’t lay there in a drowsy state – get up and start doing something. Over a week or so, your body will quickly hone in on the optimum amount of sleep for you. It really works, and you feel less tired all day.

Live more frugally Much like the idea that you should plug the time leaks in your life, you should also plug the leaks in your finances. For most people, the best first step is to learn how to be frugal. Frugality doesn’t mean being a tightwad; it merely means that you look at a situation with the total cost in mind and choose the one with the best value. Here are three ways to get into a frugal mindset:

Learn strong money management skills Basically, this means one thing: make sure the money you bring in is substantially more than the money you pay out over any given period. Obviously, you can’t do this every time because of major events, but during a normal month, you need to be able to do this. If you can’t keep your own financial house in order, being self-employed will be an almost insurmountable challenge. Once you’re doing that, pay off all of your credit cards and stop carrying a balance on them.

Save, save, save Once your credit cards are paid off, start saving. Put every dime you can into a high-yield savings account (you’re not investing right now, you’re trying to build up funds to make this whole thing work, and thus risking the principal is not a good idea). If a major life emergency comes up, use this cash to cover it instead of credit, but go right back to socking the money away. Even if you have no idea whether or not you’re going to be self-employed, or even if you don’t know what you would do being self-employed, this is an important goal because it not only teaches how to make the life changes needed to save, it also shows the value of having cash on hand when you need it.

Learn how to communicate and network The last fundamental life skill that you need to work on for self-employment success is the ability to communicate with others. This boils down to two separate things: the ability to speak with confidence and the ability to quickly build quality connections with others. Work on these skills. Surprisingly, I’ve found that a great way to practice these is in the half an hour or so at the end of a city council meeting. Just go to one, take some notes, and then at the end talk to the city council members – it’s great practice for both speaking to others and for making connections.

Introspection

Once the foundations of your life are in a place that you can build upon with great success, you need to sit down and look inside yourself. For some people, this may seem rather New Age-y, but spending some time actually pondering the fundamental questions of your life can bring about some truly profound answers if you do it with sincerity and complete honesty. Introspection will almost always point you in the direction you should be going if you let it. Here’s some advice on introspection in terms of setting yourself up to be self-employed.

Figure out what your purpose in life is and what core values are Not too long ago, I stumbled upon a powerful activity from Steve Pavlina’s blog that fits the bill here. Here’s how to figure out your purpose in life in four easy steps:

1. Take out a blank sheet of paper or open up a word processor where you can type (I prefer the latter because it’s faster).
2. Write at the top, “What is my true purpose in life?”
3. Write an answer (any answer) that pops into your head. It doesn’t have to be a complete sentence. A short phrase is fine.
4. Repeat step 3 until you write the answer that makes you cry. This is your purpose.

Steve offers some additional pointers on the activity, but the core of it is described right there. For me, when I first read it, it seemed esoteric and goofy, until I actually carried out the exercise. It took some time for me, but when I hit upon my purpose, it did bring me to cry: to change people’s lives. I do this through this blog and I do it as a parent, too.

You can extract your core values using a similar technique. Just start listing values in much the same way. List about a hundred of them. The ones that make you feel something inside are the ones that are truly key to who you are.

What do you do with this core purpose and these values? Everything you do in life should follow them. The closer you get to that, the more at peace you’ll be with yourself and the better you’ll feel about life, and that makes the difficulties and discipline needed for successful self-employment so much easier.

Figure out what you are truly passionate about The easiest way to do this is to take a large chunk of vacation from your current job, turn off media distractions (like television), and just see what you find yourself doing. What are you drawn to over and over again? What things do you do that make you happy during that time period? Don’t use a single day as a judge – you need at least a few days for this to work. Look for things you continually return to.

For me, I discovered two things when I did this. First, I kept coming back to writing. I wrote letters and emails and blog postings and short stories and so on. The second is that I kept wanting to spend more time with my son – I kept him home from daycare one day just to spend it with him, and I went and got him in the middle of the day another day. Thus, I concluded I’m passionate about writing and about parenting.

Understand what your talents and limitations are For every single person out there, some things are easy and some things are hard – and it’s not always obvious things, either.

I have a close friend who believes she has no worthwhile traits at all. I am much better at written communications than her (I’ve helped her time and time again with her writing) and also much better at mathematics and analysis than her. She didn’t get stellar grades in school, nor does she have a lot of inner self-confidence.

Given that, though, I am constantly blown away by her patience with children and her ability to socialize and network with people without any effort at all. Her cell phone does not stop ringing and her social calendar is stacked with an incredibly variety of people, yet she is able to just turn that off and focus all of her attention on a lonely, developmentally challenged child and almost magically bring that child out of his or her shell and put a smile on their face. I am incapable of that – 99.9% of the world is incapable of that – but she does it almost without effort.

What’s really important here is that she has figured out what she’s good at, and she’s training for that position – she’s going to be a live-in nanny for an upper class family with a developmentally-challenged child. She is literally made for this job in every way.

You might not be good in some aspects, but there are other aspects of you that seem effortless that to others seem almost magical. If you don’t know what they are, simply ask others who know you well or look for the things that you do excel at. Find those. Work with those. They’re your gifts.

Building A Plan

Once your habits and your mind are on track and your life is in sound order, you can begin to lay the groundwork for self-employment. If you haven’t built the foundation yet, don’t jump ahead to this part or else you will start off with two major strikes against you. Once you’re ready, though, it’s time to build a plan:

Understand that established self-employment systems are good for ideas, but often don’t work themselves Most packaged self-employment systems have a lot of good ideas in them, but they’ve often got some fundamental issue that keeps them from being a runaway success – if they were a true success, wouldn’t the person selling the package be doing that instead of selling you a package?

Read up on books and packages about self-employment, but never believe that any of them are the complete answer (this article isn’t the complete answer, either – it’s just a guide to help you find your own path). Instead, look at a lot of them and find aspects that they all have in common.

Another step is to invite someone you know that runs a small business or is self-employed out to lunch and ask them lots of questions about their business. Quite often, people in that situation are glad to give lots of information and advice in exchange for a good meal.

Brainstorm for ideas Once you know what you’re passionate about and what your talents are, you can start brainstorming for ideas. Make a list of your passions and a separate list of your talents and try to make a connection between each one. Let’s say you’re talented at writing and at detail-oriented work, and your passions are strategic board games and playing with your child. You can connect each one to writing by proposing to blog about them or write articles for publications on the topic. You might also want to look at a home-based daycare (connecting the detail-oriented task and playing with children) as well as organizing gaming events and perhaps opening a gaming shop (detail-oriented tasks with strategic board games).

Realize that some of these ideas may not ring true for you, but also realize that if your lists are genuine, several of these options probably will excite you in many ways. Those are the ones to start focusing on.

Develop thumbnail sketches for each exciting idea Once you’ve got the exciting ideas listed, start brainstorming each one in as much detail as you can and move on to developing a small business plan for each one, in whatever form you’re comfortable with. When you start moving into specifics, some ideas may sour on you, while other ones will continue to excite you or many even excite you more than ever.

Don’t hesitate to drop ideas that start to sour for you – if they’re souring already at this point, they’re probably not the things for you to be doing right now in your life.

Continue to flesh out details about the best ideas As your list of ideas gets shorter and shorter, they should take on more and more detail. Try to imagine yourself doing these things in as much detail as possible and attempt to include these details. The goal here is to keep whittling things down until you find that one true thing that you should be doing with your life.

Figure out how to dip your feet in the water Once you’ve found the one or two items that really excite you from head to toe, figure out how to get started with that idea in your spare time. Perhaps you’ve found that gardening and selling the produce directly to buyers is your real passion, so plan a large garden and buy a slot at a farmer’s market to sell your produce, get your name and face out there, and look for what the customers want to hone your ideas. If you want to be a writer, start a blog with a clear topic and a clear posting schedule and work on making it successful.

Executing The Plan

All the pieces are ready now: you’ve got your habits and your life in place, you’ve figured out what you want to do and you’re starting to dabble your toes in. Now’s the time to start the march towards actually pulling it off – handing your walking papers to your old boss and strolling out the door to your new future. Here’s how to make that progression.

Define the clear benchmarks of success that would enable you to quit As you learn your new business, you’ll begin to see what the possibilities of that business truly are. Define the thresholds of success that you would need to achieve in order to be able to live without your current job. I would advise setting a threshold substantially higher than the bare minimum that you would need to make it in order to minimize the risk in making the transition.

Once you’ve defined these benchmarks, keep cultivating that business in your free time and working towards meeting those benchmarks. As you tune the business, those benchmarks that may have at first seemed unrealistic will slowly become realistic, then reachable, then before you know it, you’ll be there.

As success comes, find ways to leverage your current job against your burgeoning new business When you get close, you may be tempted to just walk out on your current job. Don’t do that right away. Instead, find ways to leverage that position into better business for you. Use the workplace to make some great connections for the future, some potential business contacts, and also to make things easy for transition.

Doing this serves two main purposes. First, it can give your business a boost as you make that big switch. Second, and perhaps more importantly for the long run, you leave in an amicable and friendly fashion so that if you need to, the door is open to the possibility of your return.

When the time comes, go for it Grab the situation by the horns and walk away into a fulfilling existence of doing what you’re good at and passionate about, following your own rules. When the time comes, you’ll know – don’t let nagging doubts hold you back.

I like your suggestion of wading in while working your current job rather than diving in. My wife and I have a small startup. After a good deal of initial work, a market shift knocked the business plan to pieces (always a risk in the tech world). Fortunately the company framework is flexible, so we just have to start over with different products than our original one. Had we “quit the day job” — well, I don’t want to think about it!

I tried Steve Pavlina’s “write down stuff until you cry” method to find my passion, but I ended up crying over something very negative, the opposite of what I want my life to be like. This isn’t a situation that’s discussed on his blog post. Maybe I just worry about things too much.

Great piece!
I like how you keep stressing about not quitting your job (yet). I did quit a job one time and I thought I was going to get a quick one before my savings run out… It didn’t quite happen that way. Now I am big proponent (to my friends) of not moving until the job prospects are pretty good. Not quitting until you have another job, etc. Just like the Emergency Fund, I consider having your day job a nice backup as you get into a new business until you figure your cash flow out.

Unfortunately if I start my own business in anything related to my major (and thus to my full-time job), I will probably NOT be able to start it while still keeping that full-time job due to various IP and conflict of interest agreements (engineering…).

Now, I may be able to get a signed release allowing me to work on such things provided it does not interfere or compete with my work. We shall see when I get to that bridge.

James,
Not sure what kind of engineer you are, but there are ways to work this out in my industry (high tech). Some companies can be very supportive of employees with good ideas. They may even want to invest or support you in some way (obviously they’ll want something in return).

Make sure you talk to your boss about this but only do it when you’re absolutely confident in your idea and your willingness to take it on. You need to be prepared for the possibility of losing your job. However, you might be pleasantly surprised by the outcome.

I agree that health insurance is a huge part of self -employment that many people don’t think about before quitting their jobs. Take a look at your last paycheck and hopefully your company breaks down where all your deductions go and you can see just how much they pay for your health insurance. It can be easily over $1000 if you have the full medical/dental/vision plan. Also, don’t forget that if you have higher deductible, you can save a little money each month but if you have to pay for expenses with a 20% credit card, it might not be worth it!

When I started my company it took about a year of planning before I quite my regular job. By that time I had 1.5 years worth of living expenses saved up. If you are living week to week, you can’t operate your business correctly because you will be too focused on short term gains and not focused on how to correctly set everything up.

For example, I had a client fall behind on payment so I set them up with credit terms. It gave me some tax benefits and in the long run I’ll get much more money that I would have initially. If I had of been living paycheck to paycheck, I wouldn’t have been able to be as flexible which not only would have made me seem less professional, but it would have meant missing out on a significant financial opportunity.

Sorry folks but Self Employment is the worse kind of rat race there is, 7/24 stress and pressure. I see in my wife’s family all the time. They are all, for the most part self employed, and none of them have had the same financial success (in terms of pure income – what you do with it is another matter) than my wife has being a salaried employee. For the most part it is the spouse’s job that often is keeping them afloat.

While work can my wife down at times when it comes to holiday time she shuts off the computer the phone and no email etc. You can’t do that when your self employed. If you can do as Trent says live frugal save a years wage than why not work a year or two longer and retire at 35 or 40 and work part time somewhere . That’s what Derek Foster (of stopworking.ca fame) did retired at age 34. Early retirement beats the hell out of self employment any day (or working for that matter)

There are very rarely times when a person can give up paid employment and follow what they love and make a living at it, but as I said it’s rare.

This is way too long. My father who was a senior veep of marketing for the number one textile manufacturer said to me once, if you can’t sell a customer under 1 minute, its not worth the presentation. I lost track of how long it took me to read the first half and stopped. You have a good topic but isn’t it better to break it up?

This has nothing to do with what you write about in this entry, but – I’m sorry, I got distracted by the painting of the lady with the fan. Can you tell me more about it? Soon as my curiosity is satisfied, I can relax and read what you wrote. :-)
Thanks!

I really likes this article, because it hit on some things that are an issue for me. My health has been bad for about 7 years now. I had a dr.’s appt. yesterday to discuss some of these issues and she put it to me point blank- the stress in my life is causing a lot of it, and I do way too much for others and not enough for myself. It is my nature to help others, but I took her advice to heart, and I will have to break this. I came home from the dr. very depressed. I laid in bed for about 30 minutes, then on the couch watching t.v. for about 2 hours, something I NEVER do. Strangely I felt invigorated enough to empty the dishwasher, then hang out a load of clothes. While I was hanging out the clothes, enjoying the fresh breeze and the warm sun, it hit me. I want to help others help themselves! Not do for others, but show them how to find alternatives for their situation. I can do this in a couple of different ways. I can become a Crown financial leader. This is a financial help program run by Howard Dayton. I listen to the program on my local Christian radio station whenever I can. You can train as a counselor through their program and then lead small group studies in your church. Or I could return to college and become a therapist. Both are options, but the first seems more practical for me and not so overwhelming. Our daughter is about to move back home with her 5 month old baby so that she can work full time to save money for a down payment on a house. We will be providing child care in the evenings. The dr. was not too thrilled to hear this. She said I really need to set some limits so that I don’t become worn out. While I know she is right I will still help my daughter with this important step. She is only 22 and is looking at the future and how to provide the best for her son. Maybe something I have taught her over the years has rubbed off.

Yes, this is a long article but full of meat. Don’t take it as a blog post, take it as an article.

I got laid off and within a couple of months started my new business. It consumes my life (kind of) but it is better than working for “the man” – there is NO job security out there and even if I go back and get a job somewhere else I’ll still have this on the side.

Starting/owning a business is a huge, serious matter, it’s not easy and there will be significant challenges. But the world has changed – where can you find a job with a pension? What “stable” company doesn’t do layoffs?

I strongly urge people that are concerned about their future to figure out an alternative source of income and move on it – don’t wait until you have to – start now!

I’m happy I did, and work as much as I did as GM of a software company with a regular paycheck. But the benefits greatly outweigh the cons.

Jason Alba
CEO – JibberJobber.com
because relationships are key in what you are doing…

Thank you for this article although I felt it to be associated with the more “personal” aspects of starting a small business rather than the financial. I have had a dream of starting my own medical billing business (been in the field for seven years) and have the opportunity to secure my first client; a rather large client. The hardest part they say is finding that first client willing to give you the chance to make a difference in their practice but it seemed easy enough for me to get my foot in the door. My issue will be finding the capital to meet overhead costs in the first 3 months as well as startup costs.

I did enjoy your suggestions on life preparedness. I tend to stray from my responsibilities on occassion and forget my priorities. I will definitely start working on the home first to ready myself for the daily grind of a home-based business. Thanks for the information!

Hey,
Congrats on a great post and on achieving your purpose, you really are changing peoples lives with your writing.

I’ve been thinking about going it alone for quite a while, and have workshopped a few ideas with friends and family, but the whole ‘find your purpose’ exercise has given me real clarity. I really thought it sounded like a total wank, but it seriously worked.

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